The State of Manufacturing ERP Systems

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Written by Jon Minnick, Associate Editor, Manufacturing Business Technology

The State of Manufacturing ERP Systems

page 2

INTRODUCTIONEnterprise Resource Planning (ERP) systems are

incredibly important to manufacturing today. Looking back at the history of manufacturing solutions, the in-dustry started with Manufacturing Resource Planning (MRP)-type systems for basic planning and optimi-zation. These early systems focused on simple goals like reducing work-in-process and inventory, while increasing on-time shipments.

Today’s ERP systems have expanded beyond that basic manufacturing planning into enterprise optimi-zation — which is critical to survive. According to Rick Veague, chief technology officer with enterprise software vendor IFS North America, “The reason why that’s so critical today is that global competi-tion has reached unprecedented levels and, unless you’re good at absolutely everything you do, your competition is going to eat you alive.” Manufactur-ing Business Technology (MBT) recently surveyed its readers to understand their ERP usage and needs. Knowing that ERP systems are crucial to manufac-

turing today may be troubling news for the 31.5 percent of respondents in that MBT survey who said they currently don’t have an ERP system in place.

This report looks that those results and includes industry insights and trends from ERP systems and software vendors including: where these solutions are today; how companies prefer to have their sys-tems hosted; the biggest challenges for ERP systems; and where the systems are headed.

SECTION 1: WhERE WE AREBack in the year 2000, ERP was still considered

quite strategic for manufacturing companies. Many midmarket companies didn’t have much technology in place, so around that time manufacturers were just beginning to implement their first truly integrated systems. Now ERP systems have evolved to become

a core piece of business infrastructure like electricity and communications.

“I don’t know how a small- or mid-sized man-ufacturer can stay in business without an ERP system today,” says Pete Zimmerman, manufactur-ing Segment manager for the enterprise software provider VAI. “The ERP application really touches every aspect of the production of a manufactured

item — anything from labor tracking to component utilization — so it’s crucial for a company to have an ERP system in place.”

It wasn’t all that long ago that companies didn’t have sophisticated email systems. Today, emails are imperative to business and technology allows them to chase us wherever we go in the world. Likewise ERP has grown to become a fundamental part of the fabric for manufacturers. The challenge for ERP vendors is to help manufacturers understand that ERP systems aren’t just handling inventory, orders and accounting any-more. They’re essential to keeping up with competitors who have taken advantage of the technology software and systems are bringing to them.

Evolved SystemsOf the readers surveyed, almost 63 percent have

a system that is four years old or older, with just over 34 percent of overall respondents indicating a system that is seven or more years old. Since ERP systems have been evolving at a record pace in the last ten years, some manufacturers may be surprised to find out just how robust systems can be nowa-days. So what has been the biggest evolution?

“My instinctive answer would be ease-of-use,” indi-cates Zimmerman. “I think the older systems were much

Do you currently have an ERP system in place?

YES68.5% NO

31.5%

What size is your company?

30.4%50 or less employees

11.5%51TO100

3.4%

3.4%301

TO400

201TO

300

4.7%

401TO

500

5.4%

101TO

20041.2%

More than500 employees

The State of Manufacturing ERP Systems

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better and takes a lot of the guess work out of it.” Today all business is global and so a good ERP

system needs to be able to support a business operat-ing over international borders. M&A activity is very active, therefore manufacturers need an agile system that allows them to incorporate new processes, po-tential new divisions or divest divisions or work that are no longer profitable.

The demographics of the manufacturing workforce is changing too. An aging workforce is carrying a lot of valuable information around in their heads that isn’t represented, and is difficult to capture, in older systems.

“Modern ERP systems begin to provide tools that capture that soft knowledge from the aging work-ers — not so much the transactional knowledge, but content,” explains Veague with IFS. “Then, of course, we see the rise of social networks and social type features within ERP software. This is because the next generation coming in, the millennial genera-tion, has a really different idea about how software and IT works and how they interoperate and interact with complex systems. The so-called digital natives have a very different set of expectations about what tools they are going to have to do their job.”

Largely, modern ERP systems have evolved way beyond those abilities to do things like product data, lifecycle and human capital management. Manufac-turers, especially in North America, are developing and growing technical talent to run more sophis-ticated manufacturing facilities. It is one of the real pain points they have encountered in having the ability to tie systems together all the way from data collection on the shop floor, all the way up to human resources.

“How we’re going to constantly grow and train the next group of employees is all part of the pur-view of the system now,” says Dick Schultz, director of product marketing-manufacturing with ERP solutions provider Epicor. “What we’re capable of providing is significantly broader than systems that haven’t largely been touched or upgraded from ten years ago — especially in the way that they look and functionally compare today.”

Top TrendsBehind modern ERP systems are trends pushing

innovation of capabilities and functions. Some of the big changes to these systems concern analytics, automation and mobility.

Manufacturers that survived the Great Recession that had traditionally been in one environment and one supply chain – like building parts that go into

more rigid and inflexible in terms of a user interface. I think manufacturers would be very surprised to see how easy the systems are to use today — not only from an end-user perspective, but also the ability to analyze the data that the modern ERP systems contain.”

User interfaces years ago started as green screens that were unable to represent a process like an onscreen drawing with measurement points. These older systems couldn’t display graphical representa-tion of what is going on within an individual process. Likewise, reports were processed in batches and didn’t allow companies to see real-time information.

“Customers who have not updated their systems, will be surprised at how the functionality of ERP systems has expanded beyond core business process-es,” indicates Sue Irby, senior product manager for Exact. “In addition, the user experience continues to improve, providing more intuitive navigation of the system so the user no longer has to have extensive knowledge to be able to use the system.”

Today’s ERP systems have advanced capabilities that not only allow a more complex interaction with real-time data, but a lot of that data is mobile, allow-ing individuals to be device independent. So how does that help a manufacturer?

“Manufacturers today are moving beyond just product manufacturing by expanding into services to enhance their customer experience and drive new revenue streams,” explains Larry Korak, direc-tor of industry and solution strategies for industrial manufacturing with software solutions provider Infor. “Modern ERP systems give field services personnel re-al-time visibility into things like replacement or spare parts and let them know when a customer’s machine has gone down and needs servicing. All of this is possible today, and companies are making use of that real-time information on a daily basis.”

Supply chain visibility in modern ERP systems allow companies to look at real warehouse levels and predict where those levels need to be. Manufac-turers can manage virtual warehouses to see what they’ll need for production and make sure that raw materials needed have been ordered. Parts can be as-signed lot numbers and traced from upstream source materials to the end user.

“The fact is, we’ve gotten much smarter systems that are tracking material and part movement in real-time,” adds Korak. “An individual swiping a badge to check out inventory can automatically re-order materials based on orders placed in the system. Real-time inventory visibility and replenishment manufacturing execution helps manufacturers plan

“ supply chain

visibility in

modern erP

systems allow

companies to

look at real

warehouse levels

and predict where

those levels

need to be.“

The State of Manufacturing ERP Systems

page 4

your customer needs. That way you can deliver the right product when your customers need it at the lowest price.

“So what we see is less reliance on optimizing manufacturing per se — meaning the shop floor — but the real focus has turned to front-end sales supply chains and aftermarket service, because you want to build that long-term relationship with your customers.”

SECTION 2: hOSTINg METhODFrom an ERP perspective, companies still large-

ly host their systems on premises; that’s where a majority of manufacturers are today. As indicated by the MBT survey, 76.1 percent of companies still have an on-premise only solution, with approximately 24 percent taking advantage of a cloud, SaaS or hybrid of systems. But that is changing as companies are seriously looking at either a hosted, single-vendor cloud system or multitenant SaaS. The drivers to these platforms are a reduction in infrastructure, fear built up in technology laggards and the ability to have someone take care of the system and hardware for the small and mid-market manufacturer. It also reduces the need for big capital investments needed to upgrade machines and systems to newer, more

dynamic platforms. But there’s still hesitation to quickly move to a cloud-based system.

“Manufacturers today are still uncomfortable about letting go of the company’s crown jewels and putting them in an environment in the cloud or a SaaS deliverable,” says Schultz with Epicor. “I think that will evolve over time as companies look at new ways to deploy their systems and get close

products somewhere else – have had to change their focus in order to survive. They’ve had to evolve their business outside of traditional areas to try to drive new revenue. Some companies have done this by entering into new supply chains — putting new pressures on new methods of providing commerce. For these companies, the pain point is dealing with Electronic Data Interchange (EDI), where before they never had to worry about that. Now these manufac-turers have a big learning curve to contend with, in order to get closer to their end customer.

Having e-commerce components allow manufactur-ers to improve order taking, respond to orders and get closer to the consumer. For instance, Walmart has re-cently focused on disintermediation, forcing manufac-turers to do things that have not been traditionally in their wheelhouse. About ten years ago companies could count on a process of just manufacturing and shipping products up the supply chain.

“How it got to the end consumer they didn’t really have to trouble themselves with,” explains Schultz with Epicor. “Now, as that’s all being pushed back down the supply chain, even small- and mid-market manufac-turers are having to deal with some of those supply chain complexities of getting their product to the end customer.”

Additionally, manufacturers want the ability to analyze their data continuously, according to Zimmerman at VAI. Whether that’s in the area of production and employee productivity or customer trends for payment, “People just don’t want to be tied to a desk or a specific device,” says Zimmerman. “They want to do their job in a mobile way. The web, and more specifically portals, give our customers one central place to go that gives them their key performance indicators and information they need everyday to manage their part of the business.”

Finally, manufacturing software and processes are a pretty mature area. Because of the level of automation seen in factories now, as well as the level of automated planning, there’s not much to be gained any longer by continuing to make manufacturing processes efficient.

“I think we’ve squeezed as much as we can out of that, so that the real trend in ERP is all the supporting things that drive manufacturing,” explains Veague. “What we see is increasing reliance on complex supply chains and distribution channels. Front end systems like CRM allow you to reach potential customers with better product information, quoting and things like that.

“Overall, advance scheduling and synchronization make sure that your supply chains are lined up with your manufacturing processes which are aligned with

What is the architecture of your ERP system?

76.1%On Premises

8.5%Cloud

1.4%SaaS

14.1%Hybrid

“ From an erP

perspective,

companies still

largely host

their systems on

premises. that’s

where a majority

of manufacturers

are today.“

The State of Manufacturing ERP Systems

page 5

ideal since they’ve got nothing invested in infrastruc-ture for an on-premise solution. For manufacturers looking to expand globally, a cloud-based system can be appealing because it can be quickly implement-ed, carries lower risk in unstable regions and can be monitored from the home office.

Upgrading Your SystemAmong companies surveyed that have ERP

systems in place, 37.2 percent are either currently replacing, up-to-date or using a relatively new prod-uct. That means that almost 63 percent of respon-dents are using older system that are potentially hindering or hurting their business.

“As a vendor we’d say that they should update all the time of course, but that’s impractical because even with the best modern technology, change man-agement is a difficult process,” explains Veague with IFS. “And any change comes with risks.”

Most software vendors look at upgrades in one of two ways. They recommend that companies don’t fall more that one software upgrade away, or make sure to upgrade every 2 to 3 years. That gives com-panies time to implement new software and features; get some return on their investment; and consider what improvements they need in the next upgrade. In between those major upgrades, some vendors will also release smaller product add-ons or extensions to help their customers drive value in their companies.

“Events which push companies to upgrade include updates of software that contain new, compelling functionality or additional features; deprecation of the current version of software by the ERP vendor; and/or a requirement to upgrade hardware necessary to operate the ERP system,” says Irby. “ERP vendors

to their customers. Also, the level of security that software vendors are able to provide to a manufacturer’s data is likely multiple times better than anything companies can afford to do on a local scale.”

While cloud-computing is the big industry term these days, a lot of companies still like that warm, fuzzy feeling of having the server in-house. VAI sees that trend with its customers. Manufacturers will have a server in-house, but then have a vault-ing solution (an e-vault) where they’re copying their data at the end of the day and backing that up over the cloud. While the trend in the market generally is undoubtedly towards cloud, one must look at the rate of adop-tion to cloud. And yet, despite what may have been a group slower to implement these types of solutions, the lower costs and requirements should hold partic-ular appeal to manufacturing.

“Manufacturers don’t differ-entiate themselves by having a world-class IT staff typically,” says Veague with IFS. “The reality is most manufacturers are not in the business of IT. It’s just a necessary expense. As ERP and manufacturing solutions advance, there’s an increased cost pressure to

optimize manufacturing and increase IT budgets to deal with these complexities. That can be hard to reconcile.

“At the end of the day it’s a specialization and volume type of question. We see more and more of our customers turning to cloud as a way of get-ting out of the IT business. They know that we’re the software experts and we know how to support the complexity and IT infrastructure, so they just want us to deal with it for them. That way they can focus on just using the software and running their business.”

For a manufacturer looking for their first ERP solu-tion, going directly to a cloud-based system could be

the blended deployment optionQAd Inc., provider of cloud erP solutions

and services for global manufacturers,

announced in october 2014 that nearly half

(45 percent) of QAd Cloud erP customer

sites exist as part of a blended deployment.

Customer-defined security allows users to

easily transact across business entities with

complete visibility, consistent functionality

and the same user interface. In addition, in

a blended deployment the finance team can

view both individual business unit results

and run consolidations that cross their cloud

and on premise sites seamlessly.

Automotive industry customers with a

larger number of sites or sites in emerging

regions are the most likely to take advan-

tage of the blended deployment option.

blended deployment allows them adequate

time to transition to the cloud or to enable

opening their new facilities quickly.

How old is your current system?

Currentlyreplacing

<1year

28.6%1 to 3 years

28.6%4 to 6 years

15.7%7 to10 years 18.6%

11+ years2.9%

5.7%

The State of Manufacturing ERP Systems

page 6

the potential for errors. A modern ERP system, built on modern technical standards, is a very open platform for exchanging data or integration with other solutions.”

Another mistake manufacturers make is assuming that ERP can be put into place using the company’s current processes without any change. “ERP systems are based on industry best practices to increase ef-ficiency and productivity in an organization,” indi-cates Exact’s Irby. “The result is that customers often underestimate the time and effort required to take full advantage of the functionality provided by their ERP. This has resulted in ERP companies developing services and implementation offerings to assist businesses in improving their overall operations and taking advan-tage of these industry best practices.”

Pain PointsOf course, every company wants things cheaper,

but that’s not necessarily a pain point for companies. Manufacturers are looking for greater connectivity, inventory control, mobility and a solution that not only meets the needs today, but drives them towards their goals of tomorrow.

Manufacturers want greater connectivity and they want ERP vendors to continue to push the envelope in terms of connectivity especially in this age of the Internet of Things (IoT). Communication protocols can take time to develop themselves and are based on industry participation. RFID took years to develop a protocol for communicating. Companies need standards that they can all use. With IoT, it will only be a matter of time before millions of devices can be connected. Sensors will need to be able to commu-nicate part information to the main system. Devel-oping that connectivity requires communication protocols that still need to be established.

“I’ve been working with ERP software for quite some time, and many of the main issues custom-ers have been dealing with haven’t changed in that period of time,” says Zimmerman with VAI. “For me, it’s in and around inventory control. Specifically for manufacturers, it’s making sure they’ve got the right, raw materials when they need them, and it’s making sure they’re producing the finished goods when they need them. That’s still a hot button issue because, let’s face it, the biggest assets that a manufacturer has is its inventory.

“What gets people excited nowadays is this concept of mobility — and really depending on how you define it. If it’s operating an application via a web browser, there’s that component of mobility. But the other thing that I think really excites people now is apps that are

would prefer customers keep more current to ensure they have the latest, most efficient functionality to run their business. Ideally customers would not be further than 1-2 releases behind, but, the time, dis-ruption in daily operations and expense of upgrades must be minimized by the ERP vendor to motivate customers to continue to upgrade on a regular basis.”

SECTION 3: BIggEST ChAllENgESMisconceptions

One of the biggest misconceptions about ERP sys-tems today is that implementations can take years —and that’s not necessarily true. Older systems tended to have a lot of customization build specifically for a manufacturer, creating a longer implementation timeframe.

“Fifteen or 20 years ago, when ERP systems were just coming on, a lot of functionality was being developed while they were being implemented,” says Infor’s Korak. “There was just a ton of consultancy requirements and IT industry expertise required to implement an ERP system. That’s just not the case anymore. We’re able to take a new system live across a company in four to six months with really robust functionality and capabilities. That’s because of all the refinements that have taken place over 20 years.”

There’s also a perception that companies have to buy different pieces of software from different ven-dors in order to come up with a solution. There are ERP vendors that offer a single-source solution for hardware, software and professional services.

“I think that there’s a perception that by using a single-source solution, you’re going to be reliant on that vendor forever to make any personalization or changes,” says Zimmerman. “I think there’s a miscon-ception that companies can’t have any self-sufficiency or independence with an ERP application.”

In some cases there is also a misconception about ERP being a silo system that exists independent-ly. The reality is, while some ERP solutions cover numerous things and others are more narrowly focused, all the systems have to work together in a carefully orchestrated manner to support a modern business.

“The idea that engineering can design something and throw it over the fence and somehow manufac-turing picks it up and makes it, that’s not the most efficient way of doing things,” explains Veague. “It leads to problems in product quality and missed customer expectations. If you have an integrated engineering and manufacturing solution, you cut down

“It’s important for

a manufacturer to

really pick those

things that are

strategic to their

business today

and in the future,

making sure that

the system they

choose will

support those

things.“

The State of Manufacturing ERP Systems

page 7

are fundamental to your business first,” advises Korak with Infor. “Then ask yourself if they can be found in a standard ERP or if some rationalized capability creates a need to look at some bundled package. Start with how you make money and then work from there.”

Moving ForwardERP systems, like any successful business, are

always innovating and expanding their usefulness. So what will the future bring for ERP systems then? Epicor sees the industry at the beginning of a con-tinuous evolution of systems deployments moving largely into single- or multi-tenant hosted systems. “There will be a segment of the market that will always want to have their hands on their system and not allow it to go someplace else, but I do think that will be a trend in this business as financial drivers in

the industry continue to push back. Companies don’t want to see that stuff on the capital side of the busi-ness. They prefer to see it built into the P&L where it belongs,” says Schultz

Companies are also dealing with growth initia-tives that drive themselves to either e-commerce or efficiency and collaboration through mobile deploy-ments of software. This allows the next generation of employees and leaders that come in to consume the information and data in way they want to see it in a different manner than what was initially built into ERP systems.

ERP vendors are also getting a lot of interest from customers in functions and capabilities that can be achieved in an app. To address this, vendors are building things like location transfers and warehouse functionality — typically done with RFID devices or

interfaced with their ERP system. You know it’s those things that I think manufacturers want to do and are struggling with in their older, outdated systems.”

SECTION 4: MOvINg FORWARDFinding the Right Solution

“The very first thing when looking for an ERP system is to make sure that the top line executives are on board with their business systems in start-ing an evaluation,” cautions Schultz with Epicor. “IT-driven evaluations typically don’t end up in a good place and even if they do move forward imple-mentations aren’t nearly as successful. You need to align the system gaps you currently have with your current and future business plans — then go out and really looking at a system that fills those gaps.”

It’s important for a manufacturer to identify those things that are strategic to their business today and in the future, making sure that the system they choose will support those goals. It’s important for companies to focus first on the important things that are going to change their business and then the day-to-day things second.

While identifying those requirements, employees should indicate what they need applications to do for them on a daily basis. Then they should define what types of dashboards and reporting they need on the backend to get their job done.

“Define your primary processes and functions that

When are you looking to invest in an ERP system?

42.9%Currently looking

14.3%In the next12 months

14.3%In more than

12 months28.6%Unsure

The top 10 requirements for a new or upgraded ERP system as indicated by surveyed manufacturers

Production Management 39.7%

Inventory Controls 28.6%

27.0%

22.2%

22.2%

20.6%

20.6%

20.6%

19.0%

Financial Management

Forecasting & APS

Sales Order Management

Engineered-to-Order

Materials Management

Supply Chain Management

WhareWarehouse Management

Project Management

20.6%

The State of Manufacturing ERP

page 8

paper — into an app. The trend for manufacturers is to be more mobile by completing more functions and interfacing with apps on smartphones and tablet devices.

“An ERP solution must provide the necessary tools to drive organizational efficiently and reduce overall operational costs,” explains Irby. “A company must determine the key drivers for their business and select software that can be implemented to improve those key drivers and generate an ROI that justifies the investment.”

With ERP systems being critical to today’s manufacturing industry, imagine how more robust they’ll be in tomorrow’s world. It seems that, for the most part, companies understand how import-ant these systems can be and are already preparing. According to those surveyed by MBT, 57.2 percent of companies are either currently investing in ERP or will be doing so within the next 12 months, while

an additional 14.3 percent will be investing in more than 12 months.

“ERP systems will continue to support global busi-ness, drive better ease-of-use and ease-of-value and I think a lot of that has to do with changing a rather tra-ditional, transactional model to a more of a knowledge, content model,” indicates Veague with IFS. “We certainly see mobility everywhere. More and more businesses are on the move. People that are making decisions aren’t necessarily sitting at their desk all the time. ERP is a very vibrant system today, running 24/7. If you’re not con-nected to that information flow you don’t know what’s going on in your business.”

This data is based on the results of a survey sent to the Manufacturing Business Technology subscriber base. These readers are comprised of CEOs, presidents, owners, engineers, managers and directors across all manufacturing industries.